NAFTA TUTORIAL COMPLETING A VALID NAFTA CERTIFICATE

NAFTA TUTORIAL
COMPLETING A VALID NAFTA CERTIFICATE
This tutorial is a step-by-step guide to help you understand how to complete an accurate
and valid NAFTA certificate. With the implementation of AMPS (Administrative Monetary
Penalty System) it is essential to have fully completed and accurate certificates on file to
ensure compliance. Invalid NAFTA certificates of origin are one of the largest areas of
concern for non-compliance. To claim the duty free status, a valid certificate must be on
file. Anything less is unacceptable and subject to penalty assessment.
NAFTA Tutorial – Completing a Valid NAFTA Certificate
Tutorial by A&A Contract Customs Brokers Ltd.
NOTE: This document is only a guide. Do not use it as your only reference source on this
subject.
If you have any questions regarding this document or would like more information regarding our
NAFTA consulting services, please contact A&A Contract Customs Brokers Ltd. at:
Email:
Toll Free:
or Phone:
Fax:
[email protected]
(800) 663-4270
(604) 538-1042
(604) 538-3994
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NAFTA Tutorial – Completing a Valid NAFTA Certificate
Tutorial by A&A Contract Customs Brokers Ltd.
Table of Contents:
Introduction.......................................................................................................... 4
Shipment Requirements.......................................................................................... 4
Low Value Shipment Requirement ...................................................................... 4
High Value Shipment Requirement ..................................................................... 4
The Importance of the NAFTA Certificate.................................................................... 5
NAFTA: Article 401 – The Rules of Origin.................................................................... 5
Tariff Classification................................................................................................. 5
Regional Value Content ........................................................................................... 6
Determining Origin Criteria ...................................................................................... 7
NAFTA - Certificate of Origin Form ............................................................................ 8
Exporter's Responsibilities ..................................................................................... 10
Importer's Responsibilities..................................................................................... 11
How Can A&A Help Me?......................................................................................... 12
Appendix A – Preference Criteria ............................................................................ 13
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NAFTA Tutorial – Completing a Valid NAFTA Certificate
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Introduction
The importer is ultimately responsible for having a fully completed and valid NAFTA
certificate on file for any goods claiming the duty free rate of duty under NAFTA. Exporters,
producers or manufacturers are responsible for determining qualification under NAFTA and
completing an accurate certificate. Only importers who possess a valid NAFTA certificate of
origin can claim preferential tariff treatment.
Shipment Requirements
Low Value Shipment Requirement
For goods which are valued at less than CDN$1,600.00, Customs will accept an informal
statement of origin which may be handwritten, typed or otherwise indicated on the
paperwork.
Example of statement:
STATEMENT OF ORIGIN FOR COMMERCIAL IMPORTATIONS OF LESS THAN CDN $1,600.00
I certify that the goods referenced in this invoice/sales contract originate under the rules of
origin specified for these goods in the North American Free Trade Agreement (NAFTA), and
that further production or any other operation outside the territories of the Parties has not
occurred subsequent to production in the territories.
NAME: _____________________________________
TITLE: _____________________________________
COMPANY: _____________________________________
STATUS: EXPORTER
______ PRODUCER ________ OF THE CERTIFIED GOODS
TELEPHONE: _________________
COUNTRY OF ORIGIN:
FAX: ________
___________________________
(For purposes of determining the applicable preferential rate of duty as set out in Annex
302.2, in accordance with the marking rules or in each Party's schedule of tariff
elimination.)
High Value Shipment Requirement
For goods that are valued over CDN$1600.00, a formal NAFTA certificate is required. Either
a NAFTA certificate per shipment, or a blanket NAFTA certificate – covering one calendar
year.
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The Importance of the NAFTA Certificate
Importers using an invalid NAFTA Certificate of Origin will be denied NAFTA origin duty free
status, and duties will be applied retroactively. Duty rates will apply based on the
classification number declared at time of import.
Exporters are responsible for determining qualification under NAFTA and for completing an
accurate certificate. The importer of record is ultimately responsible for un-remitted duty
and GST on imported goods, as well as applicable penalties.
NAFTA: Article 401 – The Rules of Origin
For a good to originate it must meet the requirements set out in the Rules of
Origin - Article 401 of the NAFTA Agreement
The NAFTA grants benefits to a variety of goods from the region (Canada, United States and
Mexico). For a good to “originate”, it must meet the requirements set out in the Rules of
Origin – Article 401 of the Agreement.
Within the context of NAFTA the words origin, originate, or originating are used differently
than in the context of determining country of origin.
Article 401 of NAFTA defines originating in four ways:
1. Wholly obtained or produced in the NAFTA region.
2. Goods produced in the NAFTA region wholly from originating materials. Goods taken
from the seabed, the soil or the air in the NAFTA territories.
3. Goods meeting the Annex 401 origin rule.
4. Unassembled goods, and goods classified with their parts, which do not meet the
Annex 401 rule of origin, but contain 60% regional value content using the
transaction method, or 50% using the net cost method.
Goods can originate in Canada, Mexico, or the United States, even if they contain
non-originating materials, as long as the materials satisfy the rules of origin
specified in Annex 401 of t he Agreement.
Tariff Classification
If your goods are initially misclassified, all work done to establish eligibility will be
meaningless.
•
The rules of origin ensure that parts and materials that do not originate in the NAFTA
territory undergo a sufficient amount of processing which then transforms into
qualifying products.
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•
The rules of origin are based on tariff classification, therefore it is important that you
have the correct HS tariff classification for the finished product, and any nonoriginating parts and materials.
•
In most cases, the HS tariff classification is required to the six digit level only. For
the purposes of the Rules of Origin, it is important to understand the structure of the
tariff.
Example: Tariff classification: 2007.99
20 - First two digits are the chapter
2007 - Third and fourth digits are the header
2007.99 - Fifth and sixth digits are the subheader
Example: Tariff Change
Strawberry jam is manufactured in the United States from sugar that is the product of
Jamaica, and strawberries that are the product of Mexico.
The tariff of the finished product, Strawberry Jam is:
2007.99
The tariff for the sugar (Jamaica):
1701.99
The tariff item for the strawberries does not need to be determined, since they originate in
one of the NAFTA territories.
The rule of origin for tariff 2007.99 reads as follows:
20.01 – 20.07 A change to heading Nos. 20.01 through 20.07 from any other
chapter.
Since the sugar (Jamaica), is from outside of headings 20.01 through 20.07; the jam is
originating and qualifies under the NAFTA duty free tariff.
Regional Value Content
As well as a required tariff change, the specific rules of origin may ask that a Regional Value
Content (RVC) be met. The RVC, which is always expressed as a percentage, may be
determined by using one of the following two formulas:
RVC = (Transaction Value – Value of Non-Originating Materials) X 100
Transaction Value
OR
RVC = (Net Cost – Value of Non-Originating Materials) X 100
Net Cost
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It is the exporters choice to use either the Transaction Value or Net Cost.
The transaction value must be at least 60% of the value.
The net cost must be at least 50% of the value.
Example – Regional Value Content
Goods of tariff (subheading) 8703.10, are shipped to Canada from Mexico. The transaction
value of the goods is $3,600.00; the net cost of the good is $3,500.00; and the value of the
non-originating material is $1,495.00.
The Specific rule of origin for 8703.10 states:
8703.10 A change to subheading No. 8703.10 from any other heading number,
provided there is a regional value content of not less than:
60 percent where the transaction value method is used, or
50 percent where the net cost method is used
Assuming the first specific rule of tariff change has been met, the RVC calculation is as
follows:
Transaction Value:
RVC = ($3600.00 - $1495.00) X 100 = 58%
3600.00
Must be at least 60%, so it doesn’t qualify under this method.
Net Cost
RVC = ($3500.00 – $1495.00) X 100 = 57%
3500.00
Must be at least 50%, so the goods qualify under this method.
Determining Origin Criteria
All goods which qualify under the NAFTA rates of duty, must fall into one of six criteria
(must be indicated on field 7 of the Certificate of Origin).
Criterion A – Goods must be “wholly obtained or produced entirely in the territory of one or
more of the NAFTA countries”. No foreign materials. For goods of Criterion A, there is no
tariff change or Regional Value requirements that must be met.
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Criterion B – Goods which are produced entirely in Canada, the United States, or Mexico,
and satisfy one of the rules set out in the Annex 401 of the Agreement (change in tariff or
regional value content requirements; or combination of the two).
Criterion C – Goods must be produced entirely in the territory of one or more of the NAFTA
countries using only originating materials. In this case some of the materials are originating
due to the fact that they have undergone a change in tariff and/or RVC.
NOTE: Criterion D, E and F are rarely used, or used in very specific cases only.
A copy of CCRA’s Rules of Origin Guide can be downloaded from
http://www.aacb.com/nafta/rulesoforigin.pdf
NAFTA - Certificate of Origin Form
Field 1 - State the full legal name, address and legal tax identification number of the
exporter. Legal tax identification number is: in Canada, employer number or
importer/exporter number assigned by Revenue Canada; in the United States, employer's
identification number or Social Security Number.
Field 2 - Complete field if the certificate covers multiple shipments of identical goods as
described in Field 5, that are imported into a NAFTA country for a specified period of up to
one year (blanket period). Certificates can be issued to cover an entire year, or completed
for each shipment.
Field 3 - State the full legal name, address and legal tax identification number, as defined
in Field 1, of the producer. If you wish this information to be confidential, it is acceptable to
state "Available to Customs upon request". If the producer and the exporter are the same,
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complete field with "SAME". If the producer is unknown, it is acceptable to state
"UNKNOWN".
Field 4 - State the full legal name, address and legal tax identification number, as defined
in Field 1, of the importer. If importer is not known, state "UNKNOWN", if multiple
importers, state "VARIOUS".
Case Example: ABC Exports is the exporter of the goods to Canada, and the number
246810 is their employer's identification number. ABC has made this a blanket certificate
covering the full year. For confidentiality reasons, Field 3 is marked "Available to Customs
Upon Request". Because ABC Exports has multiple importers, they mark Field 5 as
"Various".
Field 5 - Provide a full description of each good. The description should be sufficient to
relate it to the invoice description and to the Harmonized System (HS) description of the
good. If the certificate covers a single shipment of a good, include the invoice number as
shown on the commercial invoice. If not known, indicate another unique reference number,
such as the shipping order number.
Field 6 - For each good described in Field 5, identify the HS tariff classification to six digits.
If the good is subject to a specific rule of origin in Annex 401 that requires eight digits,
identify to eight digits, using the HS tariff classification of the country into whose territory
the goods are imported.
Field 7 - For each good described in Field 5, state which criterion (A through F) is
applicable. Refer to Appendix A (page 12) for a more detailed description.
Field 8 - For each good described in Field 5, state "YES" if you are the producer of the
good. If you are not the producer of the good, state "NO" followed by (1), (2), or (3),
depending on whether this certificate was based upon: (1) your knowledge of whether the
good qualifies as an originating good; (2) your reliance on the producer's written
representation (other than a Certificate of Origin) that the good qualifies as an originating
good; or (3) a comp leted and signed certificate for the good, voluntarily provided to the
exporter by the producer.
Field 9 - For each good described in Field 5, where the good is subject to a regional value
content (RVC) requirement, indicate "NC" if the RVC is calculated according to the net cost
method; otherwise, indicate "NO". If the RVC is calculated according to the net cost method
over a period of time, further identify the beginning and ending dates (DD/MM/YY) of that
period. (Reference: Articles 402.1, 402.5)
Field 10 - Identify the name of the country ("MX" or "US" for agricultural and textile goods
exported to Canada) to which the preferential rate of customs duty applies, as set out in
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Annex 302.2, in accordance with the Marking Rules, or in each Party's schedule of tariff
elimination.
For all other originating goods exported to Canada, indicate appropriately "MX" or "US" if
the goods originate in that NAFTA country, within the meaning of the NAFTA Rules of Origin
Regulations, and any subsequent processing in the other NAFTA country does not increase
the transaction value of the goods by more than 7%; otherwise indicate as "JNT" for joint
production.
Case Example: ABC Exports has provided, for Field 5, the part number (X21) and a
description on the make of the Widget (steel) to help classify the product. The HS Tariff
Classification number for this product is 7326.90. Because the Widget is "wholly obtained
or produced entirely" in the US, the preference criterion is A. Since ABC Exports is not the
producer of the Widget, we enter in Field 8, "NO" and follow it by a (1) to indicate that to
ABC's knowledge the good qualifies as an originating good. Since the widget is not subject
to a regional value content (RVC), we indicate "NO" for Field 9. Because US is the country
of origin for this good we indicate "US" in Field 10.
Field 11 - This field must be completed, signed and dated by the exporter. When the
certificate is completed by the producer for use by the exporter, it must be completed,
signed and dated by the producer. The date must be the date the certificate was completed
and signed.
Case Example: ABC Exports finishes the NAFTA certificate by going over the statements in
Field 11 and indicating the number of pages the certificate consists of and filling in the
required info, as they are the exporter. Remember the date must be the date the certificate
was completed and signed.
Exporter's Responsibilities
* NAFTA records must be kept for a period of six years *
•
Exporters or producers that prepare Certificates of Origin must maintain records
pertaining to the exportation for a period not less than 6 years.
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•
Exporters or producers must notify all parties to whom the certificate was given, of
any changes that could affect its accuracy or validity.
•
Exporters or producers must provide copies of the NAFTA certificate to their own
customs administration on request.
Importer's Responsibilities
The importer of record is responsible to keep valid NAFTA certificates on file for a period not
less than six years. Shipment specific certificates should be kept with the customs
clearance supporting documents and blanket certificates can be filed for the year that they
cover. It is the importers responsibility to file any amending entries where goods were
entered duty free and they did not qualify, or the status of goods changes. The importer is
also responsible to supply Customs with a copy of the NAFTA certificate upon request.
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NAFTA Tutorial – Completing a Valid NAFTA Certificate
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How Can A&A Help Me?
You can access forms, websites and related resources to assist you in completing the NAFTA
Certificate of Origin, through the following links.
NAFTA Certificate of Origin
http://www.aacb.com/forms/pdf/b232ep.pdf
The NAFTA Certificate of Origin can be used for individual shipments valued at greater than
$1600.00 Canadian or to cover all goods listed for a full calendar year.
LVS NAFTA Statement of Origin
http://www.aacb.com/forms/pdf/lvsnafta.pdf
The LVS (Low Value Shipment) NAFTA statement can be used for individual shipments
valued at less than $1600.00 Canadian and must be completed for each low value
shipment.
The Trilateral Customs Guide to NAFTA
http://www.ccra-adrc.gc.ca/tax/business/smallbusiness/c124-e.html
This guide was developed by the CCRA (Canada Customs and Revenue Agency). It was
designed to help clarify NAFTA and give details on the responsibilities of all trading partners.
CCRA Tariff
http://www.ccra-adrc.gc.ca/customs/general/publications/customs_tariff-e.html
This is the Canada Customs and Revenue Agency’s search engine for HS Tariff Classification
numbers.
AMPS Tutorial
http://www.aacb.com/amps/
The Administrative Monetary Penalty System is the CCRA’s new compliance initiative. We
have developed a tutorial to guide you in understanding the responsibilities of Exporter’s
under this new regime.
For more information on importing into Canada, visit our website at www.aacb.com.
Have our team of specialists assist you with NAFTA compliance issues including:
•
•
•
•
Tariff classification
Preference criterion
Net cost verification
Rules of origin
For more information about our NAFTA consulting services, please contact us at:
Email:
Toll Free:
or Phone:
Fax:
[email protected]
(800) 663-4270
(604) 538-1042
(604) 538-3994
Thank you for taking the time to review our NAFTA tutorial - we hope you found it
to be informative. If you have any questions regarding NAFTA please feel free to
ask a question on our site at http://www.aacb.com/nafta/askquestion.htm.
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Appendix A – Preference Criteria
Field 7 - Preference Criteria:
A
The good is "Wholly obtained or produced entirely" in the territory of one or more of
the NAFTA countries, as referred to in Article 415. Note: The purchase of a good in
the territory does not necessarily render it "wholly obtained or produced". If the
good is an agricultural good, see also criterion F and Annex 703.2. (Reference:
Article 401(a) and 415)
B
The good is produced entirely in the territory of one or more of the NAFTA countries
and satisfies the specific rule of origin, set out in Annex 401, that applies to its tariff
classification. The rule may include a tariff classification change, regional valuecontent requirement or a combination thereof. The good must also satisfy all other
applicable requirements of Chapter Four. If the good is an agricultural good. see
also criterion F and Annex 703.2. (Reference: Article 401(b))
C
The good is produced entirely in the territory of one or more of the NAFTA countries
exclusively from originating materials. Under this criterion, one or more of the
materials may not fall within the definition of "wholly produced or obtained", as set
out in Article 415. All materials used in the production of the good must qualify as
"originating" by meeting the rules of Article 401(a) through (d). If the good is an
agricultural good, see also criterion F and Annex 703.2. (Reference: Article 401(c))
D
Goods are produced in the territory of one or more of the NAFTA countries but do
not meet the applicable rule of origin, set out in Annex 401, because certain nonoriginating materials do not undergo the required change in tariff classification. The
goods do nonetheless meet the regional value-content requirement specified in
Article 401(d). this criterion is limited to the following two circumstances:
1. the good was imported into the territory of a NAFTA country in an
unassembled or disassembled form but was classified as an assembled good,
pursuant to HS General Rule of Interpretation 2(a); or
2. the good incorporated one or more non-originating materials, provided for as
parts under the HS, which could not undergo a change in tariff classification
because the heading provided for both the good and its parts and was not
further subdivided into subheadings, or the subheading provided for both the
good and its parts and was not further subdivided.
Note: This criterion does not apply to Chapters 61 through 63 of the HS
(Reference: Article 401(d))
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E
Certain automatic data processing goods and their parts, specified in Annex 308.1,
that do not originate in the territory are considered originating upon importation into
the territory of a NAFTA country from the territory of another NAFTA country when
the Most-Favoured-Nation Tariff rate of the good conforms to the rate established in
Annex 308.1 and is common to all NAFTA countries. (Reference: Annex 308.1)
F
The good is an originating agricultural good under preference criterion A, B, or C
above and is not subject to a quantitative restriction in the importing NAFTA country
because it is a "qualifying good" as defined in Annex 703.2, Section A or B (please
specify). A good listed in Appendix 703.B.7 is also exempt from quantitative
restrictions and is eligible for NAFTA preferential tariff treatment if it meets the
definition of "qualifying good" in Section A of Annex 703.2. Note 1: This criterion
does not apply to goods that wholly originate in Canada or the United States and are
imported into either country. Note: A tariff rate quota is not a quantitative
restriction
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NAFTA Tutorial – Completing a Valid NAFTA Certificate
Tutorial by A&A Contract Customs Brokers Ltd.
NOTE: This document is only a guide. Do not use it as your only reference source on this
subject.
If you have any questions regarding this document or would like more information regarding our
NAFTA consulting services, please contact A&A Contract Customs Brokers Ltd at:
Email:
Toll Free:
or Phone:
Fax:
[email protected]
(800) 663-4270
(604) 538-1042
(604) 538-3994
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